from the meet-the-new-boss dept

Back in 2012, Netflix and Disney struck a deal wherein Netflix would be the exclusive online provider of Disney content starting in 2016. And while we knew that the deal had been struck, it was only this week that Netflix announced on its blog that the exclusive arrangement would formally begin in September. As of September 1, if you want to stream the latest Disney (and by proxy Marvel, Lucasfilm and Pixar) films -- you need to do it via Netflix.

Given the popularity of the Marvel films and the now-annual release of new "Star Wars" titles, that deal has become bigger and more important than ever, making it a pretty large coup for Netflix. Especially if you consider that Disney is co-owner of Hulu, which is planning to dramatically scale up its own subscription streaming video service later this year or early next. In fact, while Hulu for years was little more than an uninteresting ad for traditional cable, data suggests that Hulu's catalog is now much larger, thanks in large part to Netflix's tight focus on original content.

And while this is good news if you already subscribe to Netflix, this ongoing quest to lock down content in exclusive arrangements has a notable downside as the practice expands. As Hulu, Netflix, and Amazon have tried to each lock down their own exclusives, finding your favorite movie or TV series has become a frustrating game of hunting and pecking to ferret out which provider has the exclusive rights. It's also becoming increasingly confusing for consumers to understand when these deals expire; something that's not effectively communicated by most streaming companies.

And, ironically, while many streaming video customers cut the cable cord due to high prices, exclusive arrangements are now forcing those customers to pay for countless streaming services if they actually want to access all of their favorite shows and movies. There's a certain danger in replacing the cable industry's long-standing walled gardens with newer, different walled gardens, and it's pretty clear most of these companies either don't see the potential pitfalls or, in a rush for eyeballs, just don't care.

And as broadcasters increasingly realize they can cut out the middlemen and launch their own streaming services, it seems inevitable that the exclusivity wars will only get worse. For example, if you want to watch the new "Star Trek" TV series from CBS when it launches in January 2017, you'll need to subscribe to CBS's $7 a month, All Access streaming platform. There's likely going to be a lot more where that came from, especially as Comcast takes a bigger role in managing Hulu (NBC Universal merger conditions preventing it from fiddling with Hulu to prevent anti-competitive shenanigans expire next year).

So while the streaming industry and broadcasters are intent on following the exclusivity concept deep down the rabbit hole, few if any seem to notice that while these kinds of exclusive deals may be good for one company over the short term, they're not going to be great for the broader streaming industry over the long haul. There's a lot of potential here to fracture content availability, confuse paying customers, and drive frustrated customers back to piracy after all of the work done to get them on legitimate platforms in the first place.

from the the-dark-side dept

While we've certainly seen a fair share of ridiculous intellectual property protectionism stemming from the Star Wars Franchise, including overreaches like trying to silence people from photographing legally purchased toys and keeping breweries from making beer-themed puns, one area where Lucasfilm was generally pretty good on was fan participation, at least before the acquisition of the Star Wars rights by Disney. This included fan-fiction and films, gatherings, and role-playing events. That's what makes it so strange to see Lucasfilm decide to bully a non-profit group for daring to put together a "lightsaber battle" event.

Event company Newmindspace had organized the record-setting battles in December involving 9,951 combatants, with 2,000 in San Francisco. In January, it heard from lawyers for Lucasfilm, the San Francisco movie company that brought Star Wars to the world, and holds the rights to the characters, names and concepts within the Star Wars films.

“For three months we have been aggressively pursued by Lucasfilm over the use of the word ‘lightsaber’ in our events,” said Newmindspace co-founder Kevin Bracken. Newmindspace had been putting on “lightsaber battles” for eight years with no pushback, but in January, perhaps because the multi-city battles had drawn media coverage, a letter arrived from the Lucasfilm lawyers. “We immediately stopped using the words ‘lightsaber,’ ‘Jedi,’ ‘Sith’ and ‘The Force,'” Bracken said.

Newmindspace, which also puts on other gathering events, such as massive pillow fights and bubble-gun battles, changed the name of its "lightsaber battle" event, calling it the "Light Battle Tour", and referring to lightsabers and "light swords." As you've probably already anticipated, Lucasfilm immediately declared that the changes weren't enough. The lawyers sent more notices demanding more changes. Which is how what was supposed to be a fun gathering of Star Wars fans engaging in a fake lightsaber battle turned into a space battle between cats.

Since the agreement with Lucasfilm, Newmindspace has pivoted, and although it has more battles planned – including one on April 30 in San Jose’s St. James Park at 8 p.m. – it has put entire galaxies between itself and any Star Wars-related language. Lightsabers have been replaced with “Catblades,” which it must be said bear a certain resemblance to the famed movie weapon of Luke and Obi-Wan. And the sword-fight events are now dubbed “Cats in Space” because, said Bracken, “with the simple addition of whiskers to anyone’s face, they can be completely transformed into a galactic warrior – all it takes is a few brushstrokes and you’re ready to help us defeat evil mice across the galaxy.”

And the galaxy was saved, apparently, from a non-profit having a lightsaber battle, which obviously would have ended all the things for the Star Wars franchise. I don't even understand what the dispute here is. It can't be copyright, because the lightsabers to be used were Star Wars toys that were legally bought. I'm struggling to see how it could be trademark, as this use wasn't commercial and the likelihood of any confusion that the free battle was something put on by Lucasfilm is likely null. Yet, because one side is big and the other is small, now we have a battle of space-cats. Great job, everyone.

from the well,-duh dept

Most people realize that the cable and broadcast industry has worked tirelessly to protect its legacy cash cow from disruption. Dish was forced to make its ad-skipping DVR less useful if it wanted streaming licensing rights. Fox, Disney and Comcast/NBC for years kept Hulu from being too disruptive. ESPN sued Verizon for trying to offer more flexible TV lineups. Apple keeps running face first into broadcasters terrified of real disruption with its own TV plans. That's before you even get to cable companies busy capping and metering usage to hurt streaming services, while zero rating their own services for competitive advantage.

Gosh, it's almost as if there's a broad, coordinated, decade-long effort to keep legacy television expensive, barely-competitive, and shitty.

Enter the FCC, which, according to a Wall Street Journal report (registration required), is "probing" whether there's a coordinated effort by the cable and broadcast industry to keep Internet video from truly taking off. Though there's a number of ways the industry does this, the FCC's latest inquiry is focused on cable companies demanding broadcasters not license content to competing streaming services:

"Some evidence suggests the restrictive clauses may have effectively kept many TV programs off the Internet. Several big tech companies have tried to start Internet TV services, but have found it hard to get programming because of the exclusivity provisions. One new online TV venture, Sling TV, a subsidiary of Dish Network, says it suffered months of delay because of challenges posed by the contract clauses.

“When we launched Sling, one of the toughest things [was that] many of the programmers…had conditions in their programming agreements with other distributors that did restrict them in how they could license content,” Roger Lynch, Sling’s CEO, said in an interview."

So yes, some cable operators have demanded broadcasters intentionally limit who they offer service to, and you'd assume that Dish has forwarded something vaguely-resembling evidence to the FCC.

But the Journal report is oddly myopic in its coverage of the issue, vaguely implying that broadcasters like Disney, Fox, et al aren't also part of the problem. Disney for example owns ESPN, which again sued Verizon for upsetting the status quo of bloated, expensive channel bundles. Comcast/NBC took steps to hinder Hulu's growth despite being theoretically prohibited (via NBC merger condition) from Hulu management. Fox, meanwhile, has sued the hell out of any company attempting to do anything to so much as jostle the traditional TV apple cart.

This all comes up now because the FCC is reviewing Charter's attempted merger of Bright House Networks and Time Warner Cable. The regulator is fielding concerns from numerous companies that the merger will create another Comcast with a vested interest in hurting streaming video. Comcast's attempt to acquire these same companies was blocked, you'll recall, because the combined power of a broadcaster, cable operator and broadband company worried regulators (well, that and Comcast was immeasurably full of shit during its sales pitch).

Charter, by contrast, doesn't have the broadcast power of Comcast. And while Charter's customer service rankings are almost as bad as Comcast's, for whatever reason the company doesn't generate the same negative public sentiment, meaning less political pressure on the FCC to block the deal. To try and seal the deal, Charter has even gone so far as to hire respected neutrality advocate Marvin Ammori to help craft a company promise to avoid usage caps and adhere to net neutrality for (an admittedly unimpressive) three years after the deal is signed.

As such you're likely to see the FCC approve the deal, and the "probe" the Journal references is the regulator feeling out just what the conditions should be. Prohibiting Charter from agreements intentionally designed to sabotage streaming video competition might be a start, but it's not going to hinder the broadband and cable industry's primary avenue attack against Internet video: usage caps and zero rating. And so far, the FCC has been utterly comatose in its response to how Comcast and Verizon are using caps to give their own content a distinct marketplace advantage.

It's all well and good if the FCC wants to aid streaming video competition by opening the set top box or thwarting anti-competitive deals, but if the agency doesn't seriously address broadband competition, usage caps and zero rating, streaming video's just going to find itself choked off on the other end of the line. If the FCC wants to help, it can start by "probing" whether usage caps are necessary, whether the meters being used are accurate, and whether it made a mistake when it decided on net neutrality rules that pussy foot around the obvious problems caused by zero rating.

Historically telecom and cable merger conditions imposed by the FCC are sad, mostly meaningless, restrictions volunteered by the companies themselves (which they still often fail to adhere to). The FCC's going to have to dramatically change this historical narrative if it seriously hopes to keep the cable and broadcast industry from waging all-out-war on disruptive streaming alternatives.

from the oh-really-now? dept

Here's quite a scoop from Joe Mullin over at Ars Technica. Apparently, Disney is getting a bit desperate on the whole TPP thing. The company, which has been having a rough go of things because of the next generation not giving a shit about ESPN, decided to take things up a notch. CEO Bob Iger apparently emailed Disney employees asking them to contribute to DisneyPAC, specifically to help Disney pay for lobbyists to push the TPP across the finish line. They even made it so easy that employees can donate directly from their payroll. Here's the letter, with some commentary (how can I resist?):

As we head into the election year of 2016, the electorate faces significant decisions about the direction of our Nation's future. Besides choosing a new president, we will once again be electing new senators and representatives. These decisions will have a profound impact on the lives of all Americans. The election will also impact issues that affect our company. As such, we will continue to work with our representatives in Congress to ensure that they understand our perspective on critical issues like trade, intellectual property, tax, and travel policies. I write to urge you to consider supporting the Company's efforts through a contribution to DisneyPAC. A well funded DisneyPAC is an important tool in our efforts to maintain our positive profile in Washington.

We're a big giant company, and as such, we've stopped innovating. So we need to keep friends in Washington to protect us from innovation and competition. Please consider taking your hard earned money and giving it to us so we can keep doing that kind of thing.

In the past year, we successfully advocated the Company's position on a number of issues that have a significant impact on our business. We played a major role in ensuring that the "Trade Promotion Authority" legislation set high standards for intellectual property (IP) provisions in our trade negotiations, and we helped get that bill through Congress. We used that language in TPA to advocate successfully for a strong IP chapter in the Trans-Pacific Partnership (TPP) trade negotiations. We also pushed for provisions to promote digital trade and to reduce barriers in media and entertainment sectors. TPP will establish a strong baseline of protection for intellectual property while breaking down trade barriers in the Asia Pacific region. In both TPA and TPP we had to overcome significant efforts to weaken respect for IP, pushed not only by foreign governments but also from within our own Congress and the Administration.

Have you heard about the TPP? It was negotiated in backrooms by special interests -- but good news -- we're one of the big special interests! So we helped craft it and it's got all sorts of goodies for us. Not the public, of course. Or even you workers. But it's really awesome for Disney bosses.

The fight on these issues is far from over. Last year we spent significant time and effort engaged in a series of government reviews of the state of copyright law in the digital environment.

By the way, did we mention that 18 years ago we successfully extended copyright 20 years to keep Mickey Mouse from reaching the public domain, and we have two years left to do it again. Think of the Mouse, Disney employees. Think of the mouse!

We also continued to defend our right to be compensated for carriage of our programming by cable and satellite carriers as well as by emerging "over-the-top" services. With the support of the US Government we achieved a win in the Supreme Court against Aereo—an Internet service claiming the right to retransmit our broadcast signals without paying copyright or retransmission consent fees. With respect to tax issues, Congress extended certain provisions that provide favorable tax treatment for film and television production in the US. It also extended this treatment to live theatrical productions. Last year we also worked closely with the Administration on important veterans employment issues—an issue of critical importance for the men and women who defend our country and an area in which our company is proud to play a leadership role.

Yes, thanks to our efforts, we were able to destroy innovative technologies that consumers really liked! And now we're losing customers who are ditching cable. But rather than help us innovate, please contribute more money so that we can shut down other new innovations. Because we're Disney and thwarting innovation is just what we do these days.

In the coming year, we expect Congress and the Administration to be active on copyright regime issues, efforts to enact legislation to approve and implement the Trans-Pacific Partnership trade agreement, tax reform, and more proposals to weaken retransmission consent, to name a few.

Can you believe those numbskulls in Washington? We already did this once and suddenly they're back again, talking about the public interest and consumer rights and all that crap again. Please help us put an end to it.

On the trade front, we will also look to build on our achievements in other negotiations this year. 2016 should see significant activity in negotiations between the US and China over a Bilateral Investment Treaty (BIT), continued negotiations with the European Union over the proposed Transatlantic Trade and Investment Partnership agreement, the 50-country Trade in Services Agreement negotiations, and efforts by the US Government to raise IP standards and break down trade barriers through a variety of means.

We successfully got awesome anti-public / pro-Disney language into the TPP and now we can do it again in other trade deals. Go team! Help us lock up culture even more! And pretend it's about "free trade."

In 2016, Congress will further discuss various tax reform proposals. While comprehensive reform is unlikely, activity in the coming year will lay the foundation for what many expect to be a genuine opportunity for reform in early 2017. We have been active educating Members of Congress on the importance of lowering the corporate tax rate to be competitive with the rest of the world. The US has one of the highest marginal and effective tax rates among developed countries, creating a significant competitive impediment to companies headquartered in the US.

Because, yes, we know that you, dear Disney employee, are quite concerned about the tax rates of giant conglomerates like Disney. Please give us money to help us get a tax break! We may give you a free ticket to Disneyland in exchange. But no free music or movies. That's bad.

Congress will continue to be very active on intellectual property issues... After three years of hearings and testimony from 100 witnesses, we now expect the House Judiciary Committee to turn to legislating. We expect significant attention on legislation to modernize the Copyright Office, a small agency that can have an enormous impact on our interests.

Did you hear about the newly nominated Librarian of Congress? We hear she actually cares about the public and open access, and that's bad and must be stopped. At the very least, let's rip the Copyright Office out from under her and put it in the hands of people who understand us better. And by "understand" I mean, will soon accept jobs from us when they "transition" out of government work.

And the Copyright Office has launched several proceedings involving possible changes to laws governing the accountability of online services and the laws protecting technologies used to secure distribution of digital content. These discussions obviously have significant implications for a business like ours that is dependent on copyright policy in the face of ongoing change in technology and the marketplace.

Did I mention our successful efforts in killing innovation? This is the next part of our plan. Like the internet? Fuck you. We're Disney and we're going to fuck it up. With your money, hopefully!

We will also need to continue our work to fend off growing and concerted efforts to weaken our ability to freely negotiate the distribution of our broadcast and cable programming. Last year, the FCC teed up several rule makings that could have a significant adverse affect on retransmission consent and how we package and sell our media networks. As the debate becomes much more heated, we will need to remain vigilant.

Did you notice how odd it was that the FCC suddenly seemed to be caring about consumers again? We can't have that. We CANNOT have that. Please help us destroy the FCC. Sure your cable bills will be higher, and the internet will suck, but we're Disney. We've got a mouse.

With all of the challenges we will face this year, it is important that our PAC be strong. We, therefore, respectfully suggest that you consider making a contribution of [REDACTED]. You may give more or less than the suggested amount (although no contribution can exceed $5000 in any year) and any contribution will be appreciated. As always, 100% of your contribution is used in direct support of candidates and political entities that uphold policies and principles that are consistent with the best interests of our company. DisneyPAC contributes equally to Democrats and Republicans each calendar year. For your convenience, DisneyPAC has implemented a payroll deduction system, through which your contributions to the PAC will be deducted from your weekly paycheck. If you prefer, you may instead make a one-time personal contribution to the PAC. Your contribution is important to all of us, but I want to emphasize that all contributions are voluntary and have no impact on your job status, performance review, compensation, or employment. Any amount given or the decision not to give will not advantage or disadvantage you. You have the right to refuse to contribute without reprisal. Your help is truly appreciated.

We'll take money straight from your paycheck and put it to work making corporate Disney's life better. Not yours. Do that with whatever money you have left.

from the killing-creativity,-eh? dept

Copyright infringement kills creativity. It's killing artists and depriving future generations of a variety of works that -- if they could even be made in this era of lawlessness -- should rightfully be withheld from the public until long after the future generation is dead and next generation fully grown. So. They. Say.

Kids, I'm sure you've heard about this "Deadpool," the fourth-wall-breaking, foul-mouthed "superhero" currently raking in $$$ at the megaplexes. For years, it was a pet project passed back and forth between interested shepherds and less-interested studios. Everyone loved the idea but no one wanted to put their money behind it.

For one thing, the licensing alone was a nightmare. While Deadpool belongs to the Marvel "universe," the licensing for Deadpool as a movie character belongs to 20th Century Fox. Nearly everything else belongs to entertainment megagiant Disney. The licensing situation alone should have been enough to keep Deadpool from making it to the big screen. Very few entities want to tangle with Disney's lawyers and put millions of production dollars on the line.

But the movie still made it out into the wild, even with this potentially litigious entanglement. In fact, this weird licensing fact plays into the movie's very self-aware take on the comic book movie genre, as Ars Technica's Sam Machkovech points out:

Should you arrive at a Deadpool screening with high hopes for X-Men or X-Force character cameos or other strides toward comics continuity, you've got another thing coming. 20th Century Fox is behind this film, though Marvel Studios/Disney own most of Marvel's intellectual property, and the result is a world seemingly disconnected from the greater Marvel universe.

There are even disconnects with the Deadpool comics themselves, much to the movie's detriment. Ajax, for example, is a much more toothless supervillain than the one who brutalized the comic version of Wade Wilson, which negatively affects that entire portion of Deadpool's origin tale by opening up gaping plot and logic holes. In fact, the entire "how Wade turned into Deadpool" portion of the movie drags in both length and pacing so much that it borders on the edge of satire in practice.

Whether or not it's "satire in practice" or just the burden of dumping exposition on newcomers to better serve the franchise, Deadpool is still somewhat tangled up in licensing limitations. Crossover appeal is likely limited. And actual crossovers likely next to impossible. If only 20th Century Fox could have been as bold as those who somehow brought this film -- one that had been pronounced DOA repeatedly over the past several years -- to life.

What put this in motion is the same sort of behavior the MPAA works endlessly to prevent: the leaking of footage.

Ben Kuchera at Polygon notes that someone realized the best way to get this project underway was to show its potential audience how they (the actor, writers and director) would handle the subject matter. Fans have wanted a dark, sarcastic, fully-nihilistic Deadpool movie for a long, long time. Some test footage shot three years ago could have languished unseen on some shelf/hard drive somewhere in Hollywood and the unmade project would still be cruising from rejection to rejection. But one of these people decided to perform an action no studio would ever condone.

"I've been trying to get it made for 11 years, which is crazy," star Ryan Reynolds said in an interview with Jimmy Fallon. "We developed the script six years ago, wrote this fantastic script, it leaked online, Deadpool fans went nuts for it, so the studio granted us a small amount of money to make test footage. This test footage that we shot then sat on the shelf for four years, as it does, they didn't do anything with it, then just a little under two years ago it leaked, accidentally, onto the internet."

We, like just about every other outlet concerned with pop culture, ran the story. Everyone loved the footage, and the film went into full production.

"Here's the thing, the fans freaked out and overwhelmed Fox, and Fox basically had to greenlight the movie," Reynolds said. "The problem is the footage was owned by Fox so it was kind of illegal ... I know that one of us did it."

While no one will admit to leaking the footage, everyone involved couldn't be happier this act of copyright infringement has resulted in an actual Deadpool film.

"Oh my god, we were absolutely thrilled," Paul Wernick, one of the film's writers, told Variety. "If you go back and look at our emails after the test footage was made in 2012, we had said back and forth, 'How do we leak this? How do we get the groundswell support from our fans?' When it finally leaked in 2014 and got the reaction we hoped for, we were like, 'Here it goes!' This is confirmation we are not crazy to be passionate about this. There’s a whole fanbase of people clamoring for this movie."

That leak was, in fact, crucial. It was the film's last chance to be made.

"Had it not gotten that reaction, it would have been a disaster and the project would have been dead," Wernick continued. "We knew it in our bones this would be the reaction. We were thrilled and still to this day don’t know who did it. There is a very short list of suspects."

According to industry estimates this morning, 20th Century Fox’s Marvel pic, Deadpool whipped Fifty Shades’ Friday figure by 57% with a projected daily haul of $47.5M (that includes $12.7M in Thursday previews) on its way to a mindblowing 3-day opening of $118.4M-$123M and a 4-day between $129.6M-$136M.

Sure, leaking test footage isn't like leaking an entire film, but without that happening, nothing else does. The movie is never made and Fox doesn't have almost three times the budget grossed within the first four days of ticket sales. But because this leak happened, the studio is likely in control of a promising franchise, provided it can keep the lightning bottled and push forward without discarding everything that makes Deadpool Deadpool. And everyone involved can thank the unnamed person they won't rat out for shrugging off the insular "power" of copyright and mobilizing a fan base that is now making good on its promise to support the movie.

from the worldwide-leader-in-denial dept

Last year, Disney stock took a repeated beating as Wall Street started to realize the company wasn't faring particularly well in the face of Internet video revolution. Tens of billions in stock value instantly evaporated as investors learned that ESPN had lost 7 million customers in just the last two years. Evidence suggests this was largely thanks to the fact that ESPN leadership was utterly oblivious to the cord cutting and cord trimming trend, or the fact that a growing number of customers (the majority, in fact) are simply tired of paying for a channel they don't watch, yet pay an arm and a leg for.

To try and soothe nervous investors, Disney and ESPN executives have been making the rounds lately in an attempt to "change the narrative" on cord cutting (read: pretend the company wasn't caught with its pants down). ESPN Boss John Skipper, for example, recently admitted the company is seeing subscriber losses due to users shifting to so-called "skinny" bundles, but tried to argue these were older users the company didn't really want anyway.

"The notion that either the expanded basic bundle is experiencing its demise or that ESPN is crating in any way from a [subscribers] perspective is just ridiculous,” Iger said at one point. “Sports is too popular.”

But despite what Iger thinks, ESPN is not synonymous with sports, and cratering under the load of an evolving market is exactly what's happening. For decades, ESPN enjoyed being part of channel bundles that generated revenue regardless of whether or not consumers actually watched it. As the traditional cable bundle gets broken up, ESPN's faced with the fact that 56% of cable users no longer want to watch the channel if it means saving a little money. In response, ESPN's trying to sue companies trying to give consumers what they want, a losing proposition long term.

As alternative streaming options rise, ESPN subscribers will dip, and the company's long-term (and hugely expensive) sports programming deals are going to start feeling very heavy. ESPN could try and offer a direct streaming service, but with dropping subscribers and soaring programming costs, the numbers aren't very pretty. Just don't point any of this out, or, like pay TV analyst and frequent ESPN critic Richard Greenfield recently found out, certain media outlets may decide to set you on fire in the Hollywood town square.

Like so many legacy industries used to revenues they haven't actually had to earn in years, it's pretty clear that Iger believes that ESPN is the one that gets to decide when it gets disrupted and when it has to dirsupt:

"We’re not going to sit back and let the disrupters just disrupt,” Iger said. “We’re going to participate in some of that disruption. And we’ll decide when the time is right to be more disruptive than we have been if we really think the business model is shifting rapidly. So far we do not see that."

Like most people, ESPN execs see what they want to see. Wall Street now sees it, which is why Iger's flapping his arms and doing this particular chicken dance in the first place. It's all part and parcel of the cable and broadcast industry's sincere belief that the legacy cable TV cash cow is going to live forever -- so they really don't have to rush to adapt -- or compete on price -- any time soon. But years of denial and inflexibility are starting to catch up with executives mentally stuck in the late nineties, and if 2015 was any indication, 2016's going to demolish any lingering fantasies.

from the not-just-a-river-in-Egypt dept

About once a week now you'll see a legacy broadcast executive take to the media to try and "change the narrative" surrounding cord cutting. Usually this involves claiming that things are nowhere near as bad as the data clearly shows, with a little bit of whining about an unfair media for good measure. ESPN, which has lost 7 million subscribers in the last two years, has been particularly busy on this front. The broadcast giant has been trying to argue that cord cutting worries (which caused Disney stock to lose $22 billion in value in just two days) are simply part of some kind of overblown, mass hallucination.

Speaking to the Wall Street Journal (registration required), ESPN President John Skipper "plays offense on cord cutting" by effectively denying that ESPN is even in trouble. He starts by proudly insisting that the huge losses in subscribers weren't a surprise to the company:

"We stayed pretty calm. [The loss of subscribers] didn’t come as a bolt out of the blue to us. We had been thinking about this. We had a big town hall meeting in December. We had a priorities meeting earlier where we gathered everybody together to try to ground ourselves in our business."

Right, except that former ESPN employees have said ESPN execs weren't even talking about cord cutting as a threat until 2015. The company was also spending hand over fist (like a $125 million update for the SportsCenter set), suggesting they didn't really see the subscriber dip coming. After pretending that cord cutting didn't catch ESPN by surprise, Skipper proceeds to admit that "cord trimmers" (people scaling back their TV packages) are a big reason for the subscriber hit, but that the losses aren't all that big of a deal because the departing customers are old and poor:

"People trading down to lighter cable packages. That impact hasn't leaked into ad revenue, nor has it leaked into ratings. The people who’ve traded down have tended to not be sports fans, and have tended to be older and less affluent. We still see people coming into pay TV. It remains the widest spread household service in the country after heat and electricity."

This narrative that cord cutters and cord trimmers are old, poor, and otherwise of no interest is a popular one among cord cutting denialists, but data consistently shows it's simply not true. Cord cutters and cord trimmers tend to be young, affluent consumers who are just tired as hell of paying an arm and a leg for channels they don't watch. And, if recent surveys are any indication, there are a lot of users who don't watch ESPN and are tired of paying for it. In short, most of the data suggests that ESPN has a lot more subscriber defections headed its way with the rise of so-called skinny bundles (an idea ESPN has sued to stop).

When asked what ESPN plans to do to attack the cord cutting trend, you'll note that Skipper's first instinct is to deny that the legacy cable industry really has all that much to worry about:

"We are still engaged in the most successful business model in the history of media, and see no reason to abandon it. We’re going to be delivering our content through the traditional cable bundle, through a lighter bundle, through Dish’s Sling TV, through new over-the-top distributors, and through some content that is direct-to-consumer."

When pressed for what "direct to consumer" services ESPN plans to offer, Skipper can only provide one example: the company's brief experimentation with streaming the Cricket World Cup. That's because ESPN's contracts with cable companies state that if the company actually evolves and offers a direct streaming service, cable companies are allowed to break ESPN out of the core cable lineup. That means more skinny bundles than ever, and an acceleration of ESPN's problems. So, like a child in the dark, ESPN has decided to hide under the covers and pretend the monster under the bed isn't real.

There's no doubt that Disney and ESPN will eventually figure things out and balance the need for innovation with their desire to protect their existing businesses, but it's pretty clear from public comments and past decisions that it's going to be an ugly transition. That transition would be so much less ugly for many legacy broadcast companies if they spent a little less time trying to "correct narratives" telling them truths they don't want to hear -- and a little more time preparing to compete with the internet video revolution.

from the goodnight,-sweet-dinosaurs dept

Over the last year, ESPN's decision to laugh off cord cutting has truly come home to roost. The company has had to engage in numerous "belt tightening measures" after losing around 7 million subscribers in just two years. Where are these subscribers going? Many are cutting the TV cord entirely. Others are opting for so-called "skinny bundles" that pull pricier channels like ESPN out of the core cable lineup, moving them to additional, premium channel packs. Companies like Verizon that have experimented with skinny bundles have been rewarded for their efforts with with lawsuits from ESPN.

But there's every indication things will be getting worse for our friends at Disney and ESPN.

A new study commissioned by BTIG Research and analyst Rich Greenfield (registration required) found that 56% of those surveyed would happily ditch ESPN if it meant saving them $8 a month. 60% of females say they would ditch the channel for the $8 discount, while 49% of males would do the same. And while ESPN could pursue a standalone streaming service, 85% of those polled say they wouldn't subscribe at $20 a month, even if it bundled in all of the additional ESPN channels such as ESPN 2 and ESPN 3.

And there are some additional problems with ESPN pursuing a standalone streaming platform. ESPN's recent lawsuit against Verizon revealed that many of the channel's contracts with cable operators restrict them from breaking ESPN out of the core cable bundle; a provision that is nullified if ESPN offers a streaming version of its own. So ESPN could accelerate its own evolution in the face of cord cutting and go straight to consumers, but (at least initially) it would greatly accelerate the company's losses as more cable operators pull ESPN out of the core channel lineup.

The problem is effectively that ESPN has enjoyed more than a decade in an artificial bubble, where, thanks to the inflexibility of cable offerings, users were stuck paying for a channel they never watched. In that bubble, ESPN had no real motivation to adapt, and now the check is coming due thanks to internet video. But with the playing field changes, Greenfield's quick to note that even as a standalone option, there's simply no way that the financials work out (at least nowhere near the level ESPN's used to):

"The reality is that ESPN would likely have to charge dramatically more than $20/month/sub in a direct-to-consumer model, given the dramatic reduction in penetration rates..."The math for a direct-to-consumer offering for a basic cable network does not work, especially for channel(s) with very high monthly fees embedded within the current MVPD bundle. Disney cannot take ESPN direct-to-consumer and they know it, whether they admit that publicly or not. Furthermore, if the multichannel video bundle frays faster than expected and the TV ad market continues to weaken, ESPN's future growth prospects are dim, at best."

As The Weather Channel can attest, there's obviously going to be some casualties in the cord cutting revolution. As some companies like The Discovery Channel have been realizing, one way to ensure customers don't flee under the new paradigm of consumer is to focus on quality, a mysterious new frontier for broadcasters used to getting paid an arm and a leg for delivering the bare minimum.

from the from-plaintiff-to-defendant-(and-civil-to-criminal) dept

So, you've sued a major studio for copyright infringement and lost. How bad could it be? Here are the possible outcomes, rated from least to most painful.

4. Dismissed without prejudice. (A glimmer of hope. You can refile.)

3. Dismissed with prejudice. (You're done.)

2. Dismissed with prejudice and fees awarded to the defendant. (If you thought paying one lawyer was expensive…)

1. You're prosecuted for wire fraud and perjury and face fines of $500,000 and 25 years in prison.

Jayme Gordon, the other person to sue Dreamworks for allegedly copying his work has won the Worst Outcome Ever sweepstakes. The cartoonist claimed Dreamworks ripped off his sketches and he seemingly had the evidence to prove this -- including a rarity in many of these little-guy-sues-big-studio lawsuits: actual registered works.

Gordon demanded $12 million and a cut of the proceeds. He survived a motion to dismiss and seemed ready to take a serious run at the studio. Two years after he filed the lawsuit, Gordon suddenly dismissed it with prejudice and received no settlement for doing so.

Apparently, while Gordon was litigiously complaining about someone ripping him off, he had been ripping off another major player in the animation industry: Disney. The drawings he submitted to the copyright registration office in 2000 (that Gordon claimed to have created in 1992) looked very similar to some found in a Disney coloring book published in 1996.

According to the indictment, Gordon saw a trailer for Kung Fu Panda in early 2008. Gordon then revised his Panda Power drawings and registered them as Kung Fu Panda Power with the Copyright Office in May 2008, prior to the June 2008 release of DreamWorks’ animated feature.

In addition, Gordon apparently deleted possibly incriminating evidence from his personal computer to better obscure the origin of his "original" illustrations.

During discovery related to the lawsuit, DreamWorks’ attorneys unearthed evidence that on April 10, 2012 Gordon had deliberately erased computer files holding material related to the lawsuit. In fact, Gordon installed and used a program called Permanent Eraser to remove the files, and then deleted Permanent Eraser itself on April 13, 2012.

So, how do bogus copyright claims rise to the level of wire fraud? Well, in the same way that almost any false communication can be considered wire fraud if the government feels like pursuing it.

The Cybercrime Unit of the U.S. Attorney’s Office in Boston will now prosecute Gordon, alleging that, when his attorneys sent four emails on his behalf related to the lawsuit, including requests for discovery and a settlement proposal, Gordon “did knowingly transmit…by means of wire communication in interstate commerce, writings…for the purpose of executing” his fraudulent scheme, and that by knowingly lying under oath he committed perjury.

If only Gordon had hand-delivered those communications…

That's the bogus part of this prosecution. Sure, perjury is a given, considering the evidence uncovered by Dreamworks' lawyers. But wire fraud? That's just charge stacking. This office, however, isn't exactly shy about trumping up charges to make itself seem more impressive. It's the same US Attorney's Office that was behind the investigation and prosecution of Aaron Swartz, so this could go very, very badly for Gordon.

Gordon's case does show there's an absolute rock bottom to bogus copyright infringement lawsuits. Most suits never involve anything more than people mistakenly thinking IP laws protect ideas rather than expressions, or that similar ideas/expressions must be infringing because it's not possible for more than one person to think of the same thing. Both are the result of people overestimating their originality and grasp of copyright law.

Gordon's case looks like someone attempting to knock bags off a passing money train. Many have made similar efforts, but Gordon has surpassed them all in terms of complete, abject failure.

from the denial-leads-to-anger... dept

It hasn't been a particularly good year for ESPN, once considered evidence of cable's infallibility in the face of Internet video. The sports network spooked Wall Street several times this year; once when analysts realized ESPN's viewership totals had dropped 7.2% since 2011, and again when SEC filings showed the cable network had lost 7 million subscribers in the last two years alone. That's of course thanks to two major trends: cord cutting (and cord trimming) users tired of the high cost of TV, and the rise in so-called "skinny bundles" that ditch ESPN from the core channel lineup in a desperate attempt to retain TV customers.

"Even the Force cannot protect ESPN," BTIG Research analyst Rich Greenfield recently wrote in a note downgrading the stock to "sell." The sports channel long "viewed as the crown jewel of the Disney empire ... now appears poised to become Disney’s most troubled business as consumer behavior shifts rapidly."

45% of Disney's 2014 operating profit came from cable TV, which is caught in a desperate struggle between unsustainable programming increases and a consumer base finally fed up with bi-annual rate hikes. Case in point is basketball: in 2014 Disney signed a deal with the NBA in which it shells out $1.4 billion every year for nine years, even though ESPN's basketball viewership last season dropped 10 percent, its lowest since 2008. For years ESPN enjoyed bloated subscription rolls due to ESPN being force-included in the core cable package, and something both cord cutting and skinny bundles are threatening.

Though ESPN, like most incumbent broadcasters, has focused largely on denial instead of adaptation. Professing to be protecting "innovation," ESPN sued pay TV providers like Verizon for skinny bundles, while refusing to offer a standalone streaming service of its own for the modern era. And like most broadcast industry executives, Disney CEO Bob Iger seems to think this is just a stormy patch that ESPN can somehow ride out by charging angry customers more money:

"Iger, the Disney chief, has sought to calm investors worried about ESPN's fortunes, saying rising cable-subscription fees and increased advertiser spending would help the sports giant stay on top. Speaking on Bloomberg TV last week, Iger said, "We have lost some subscribers, but we believe we will continue to derive growth from ESPN. It will just not be at the rate it was before."

But this isn't a temporary slowdown. And, contrary to what many broadcasters believe, cord cutting isn't a fashion trend that evaporates once Millennials procreate. Cord cutting and Internet video are fundamentally changing the entire television and TV advertising landscape, something patience and a prayer isn't going to fix. At several points this year Wall Street suffered multi-billion dollar declines simply because they finally realized cord cutting was real. 2016 will be the year they finally realize the cord cutting battle station is not only fully armed and operational, but headed directly for the ESPN mothership.